Law \ Legal

Director Review of Institution Decisions Moving Forward

by Dennis Crouch

In re Palo Alto Networks, Inc., 22-145, — F.4th — (Fed. Cir 2022)

In Arthrex, the Supreme Court found the IPR Scheme created by congress unconstitutional because it gave too much authority to PTAB judges.  United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021).  In a hope for more political accountability, the Constitution requires Officers of the Government to be appointed by the US President.  U.S. Constitution, Art. II, § 2, cl. 2. The problem–PTAB judges have authority to cancel substantial property rights but are appointed by the President. Rather than rendering the AIA dead on arrival, the Supreme Court decided to cure the defect by taking some authority from the PTAB judges and handing it to the USPTO Director, who was properly nominated by the President and confirmed by the Senate.  Under the Arthrex model, any PTAB final written decision (in the AIA-trial context) can then be reviewed by the USPTO Director.

But, what about IPR institution decisions.  If you recall, inter partes review proceedings begin with an IPR Petition and an institution decision.  If the IPR is instituted then the case moves to trial and a final written decision by the PTAB.  If the IPR is not instituted, the case is closed with no right for appeal.  One quirk of all this involves the division of labor.  As mentioned above, the statute calls for the PTAB to decide the final written decision, but then in Arthrex the Supreme Court added the additional Director Review.  At the institution stage, the statute follows a different scheme calls for the USPTO Director to decide whether or not to institute. 35 USC 314.  Despite the statute, the USPTO Director has never personally signed an institution decision but rather issued regulations giving institution authority to the PTAB. The regulations do not allow for any subsequent director review. 37 C.F.R. § 42.71.  If the institution petition is granted, the Arthrex approach suggests eventual director review following a final written description. The USPTO has stated in its interim guidance documents that the USPTO “does not accept requests for Director review of decisions on institution.”

Although none of the issued rules or guidance suggests that the Director retains any authority, when Dir. Vidal took office, she issued a set of interim guidance documents stating that she has authority to review institution decisions.  Further, the new interim guidance documents state that the “Director has always retained and continues to retain the authority to review such decisions sua sponte after issuance (at the Director’s discretion).”  And, in recent months the Director has issued sua sponte review of two IPR institution decisions.

In 2021, Centripetal Networks sued Palo Alto Networks (PAN) for patent infringement.  PAN responded with two AIA trial petitions; IPR2021-01151 for U.S. Patent No. 10,659,572 and PGR2021-00108 for U.S. Patent No. 10,931,797.  The PTAB Denied institution. PAN attempted to seek director review, but was told that the USPTO dies not accept requests for Director Review of institution decisions and that “there will be no further review of the Board’s decision by the Office.”

By statute, institution decisions are not appealable, but can be reviewed on extraordinary writ — writ of mandamus.  PAN petitioned, but the Federal Circuit has now denied the petition.  On mandamus, the Federal Circuit concluded that “there is no structural impediment to the Director’s authority to review institution decisions either by statute or by regulation.”  Although the Director has delegated substantial decisionmaking authority, the court found that the Director is still the “politically accountable executive.”  Further, it apparently is of no concern that the system provides no formal mechanism for petitioning the Director for intervention.  The decision here suggests that in reality the Director has authority to intervene in any pending case before USPTO.

The majority decision was written by Judge Dyk and joined by Judge Chen. Judge Reyna wrote in concurrence and that “a categorical denial by the Director to accept any requests for review raises potential constitutional concerns.”  However, Judge Reyna suggested that the new director’s approach of sua sponte review might be enough.

When PAN’s briefing began, the USPTO’s position appeared clear cut of no director review of institution decisions, and their case was undermined by the interim actions by Dir. Vidal who decided to begin reviewing those as well. In his concurring decision, Judge Reyna writes: “We should not compel an agency to take specific action that the agency demonstrates it has already taken.”

Note: The two cases with pending director review of institution decisions are:

  • OpenSky Indus., LLC v. VLSI Tech. LLC, IPR2021-01064, Paper No. 41 (P.T.A.B. June 7, 2022);
  • Pat. Quality Assurance, LLC v. VLSI Tech. LLC, IPR2021-01229, Paper
    No. 31 (P.T.A.B. June 7, 2022).

In both of these cases, the PTAB granted institution.  Initial briefs in these director reviews are due on August 18, 2022.


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